Many of us have heard about friends, neighbors or family members stretching the truth when it comes to applying for insurance policies, or making insurance claims. But just because we’ve heard of it happening, doesn’t make it right. In addition to being a criminal activity, tackling insurance fraud is an added cost to the industry and results in higher premiums for everyday, honest Kiwis.
In 2020, insurance fraud in New Zealand is estimated at 10% of the Gross Written Premium (GWP). The GWP is the estimated amount that insurers will receive to provide insurance coverage for all insurance needs of policyholders. Last year it was estimated that fraud cost policyholders and insurers approximately $739 million. Based on 1,855,962 homes we can estimate the cost of insurance fraud to be $398 per household, per year. This cost needs to be recouped in some way by insurers, and is one of the costs that is reflected in premiums if they increase each year.
Improving the affordability of insurance and making insurance more equitable for all policyholders, is a key goal of the Insurance Fraud Bureau (IFB) and the Insurance Council of New Zealand (ICNZ) .
“If you have an insurance policy, there is a good chance that somewhere along the way, you have paid for someone else to claim for something they haven’t lost,” Insurance Council chief executive Tim Grafton.
Source: https://www.stuff.co.nz/business/opinion-analysis/115489470/insurance-fraud-isnt-a-victimless-crime–other-policyholders-pay
Some of the reasons why insurance fraud costs policyholders
1. Complex systems and process to identify fraud
Insurers often have dedicated fraud teams, who look for the first signs of new insurance fraud scams, and have the experience and knowledge to identify inaccurate and exaggerated claims. These specialist teams are often supported with specialist tools – computer programmes and AI software are increasingly being used in the early identification and fight against fraud.
Technology solutions can be expensive, so the need to continually keep ahead of fraudsters with the latest software and regular updates can be resource intensive.
2. Additional staff training
Insurance application and claims teams need ongoing training to keep up to speed with insurance fraud trends and red flags. Insurers are getting better at sharing information between them, but this does need to be communicated to staff on the front line, so that they more easily identify suspect applications and claims. Being able to ask the right questions of policyholders is also important in supporting a policyholder through the process of making an accurate application and claim.
3. Slower claims processing
When insurance staff are alerted to new insurance fraud scams, that automatically slows down the processing of claims. A new scam may also increase the quantity of claims coming through an insurer, putting pressure on staff. Particular events (say an earthquake, or travel disruption) can see unscrupulous people taking advantage of a situation and falsely claiming they were affected too. As well as slowing down genuine claims, it also adds pressure to insurers to increase staffing levels, and add additional layers of peer review or manager authorisation to individual claims.
three out of five respondents thought fraud would mean longer approval times for genuine claims
Source: Insurance Council NZ UMR Survey (April 2020)
4. More people power
Despite technology supporting insurers to identify insurance fraud, sometimes insurers simply need more people on the ground to combat the ongoing threat. Perhaps it’s experienced staff to support the claims team manually review a segment of incoming claims, or qualified investigators to help bring a case to court. Investigators may be used for specific cases, but also to check if that fraudulent activity is an emerging trend in the industry or for a particular insurer.
5. Human cost
Some types of insurance fraud can endanger lives. In the case of arson or a staged car crash, these types of fraudulent activities can have deadly consequences for those involved. Accidental injury or death is a real concern for the insurance industry and should be of concern to potential insurance fraudsters too.
6. The wider community cost
A recent vehicle fraud case, highlights the costs to the wider community. In addition to the costs to the insurer to identify and prosecute this fraudster, there will have been costs to other organisations too. The costs to the Police and potentially Emergency Services to log the collision incident. The cost to the justice system for processing of this case, between the fraudster and the insurer. We believe this is unnecessary involvement of organisations who could be using their resources to save lives and fight other more serious crime.
Are you aware of insurance fraud? You can report it by visiting our website. You can make reports anonymous if you wish.